The digital wallet is on its way to becoming the focus of financial well-being for consumers, and financial institutions can lead the charge with AI on their side. 

As it morphs into a financial tool beyond a vessel for transactions, the digital wallet is being shaped by the possibilities AI presents for predictive analytics, financial forecasting and even automated investing and charitable capabilities, one expert told Bank Automation News. 

“AI timing is nothing but perfect for [the digital wallet],” said Rishi Chohan, executive vice president of banking, financial services, insurance and retail for North America at consulting company Softserve , adding that financial institutions can create unique and interesting experiences for digital wallet users with AI. 

While digital wallet providers explore AI and use cases surface, it is becoming clear that “this is just the beginning,” Chohan said. 

Intellectual wallet

With AI embedded into the experience, digital wallets are gaining intellect, Chohan said. Banks “not only have a wallet opportunity, [they] have a smart wallet opportunity.” 

When a consumer uses their digital wallet, AI can track where purchases are made, how much was spent and monitor spending trends, Chohan said.  

Beyond retail transactions, banks can look to digital wallets to help clients meet financial goals, make payments and repay money owed, he said. AI can automatically push leftover change from digital wallet purchases into savings accounts for bills, loans or recommended charitable contributions. 

“Wallet will offer a lot of these cross services in the future, as it builds and evolves,” Chohan said. “That’s the opportunity for financial institutions to really capitalize on offering services that can help the consumers.” 

Growing usership

Consumer adoption is also driving innovation of digital wallets.  

Digital wallet transaction volume is expected to reach $16 trillion by 2028, up from $9 trillion in 2023, according to research firm Juniper Research’s “Digital Wallets: Platform Analysis, Key trends and Market Forecasts 2023-2028″ report. 

Global adoption of the digital wallet is also ticking up: 

• Digital wallet use among consumers is expected to increase 20% in Europe and North America in 2024, according to Forrester’s “Predictions 2024: Payments” report; and 
• More than half of consumer transactions in the Asia Pacific region are expected to originate in digital wallets in 2024, the report also found. 

Global adoption is being driven by the push for open banking and a combination of financial and non-payment wallet capabilities, including use for security, identity and travel purposes, according to the Forrester report. 

Digital wallet players

Players are innovating to gain market share in the fast-growing digital wallet industry, giving Apple and Google a run for their money. 

Mumbai-based Comviva, Sweden-based Ericsson, Lithuania-based SDK Finance, Wilmington, Delaware-based Velmie and Poland-based Wallet Factory are among the providers Juniper Research is watching. 

Ericsson is responsible for one in five mobile transactions through its digital wallet across 24 countries, Michael Wallis-Brown, vice president and global head of mobile financial services at Ericsson, told BAN.  

“There’s a massive disruption that’s coming” —Michael Wallis-Brown, Vice President and Global Head of Mobile Financial Services, Ericsson

Wallis-Brown noted the importance of know-your-customer and getting the power of finance into the hands of people through their mobile devices. 

Ericsson has 424 million active wallet accounts and does $369 billion in annual transaction volume, an Ericsson spokesperson told BAN. Apple Pay has roughly 500 million active wallets, according to Statista. 

Partnership approach

Traditional financial institutions, similar to fintechs, are also prioritizing innovation in their digital wallets to fill customer needs through partnerships and internal initiatives, Margaret Ryan, vice president of digital payments and product user experience and operations at American Express, told BAN.  

“In today’s increasingly digital world, shoppers are expecting that everything they need is either integrated into their phone or their laptop, for both speed and convenience, and digital wallet comes into play with that.”  — Margaret Ryan, Vice President of Digital Payments & Product User Operation at AmEx 

The card giant is working on simplifying the digital wallet, Ryan said. “The more that we can do to streamline that process, the better it will be.”  

For example, the latest wallet innovation Amex launched is the ability to tell the physical difference between cards held in the digital wallet, matching physical characteristics with cards in a real-life wallet, Ryan said. “You can easily tell the difference between your different Amex cards or other cards that you have saved [in the digital wallet].” 

Amex partners with Apple Pay, Google Pay, Samsung Pay and FitBit pay among others, connecting via APIs, Ryan said, adding that her team is in constant communication with those partners to develop solutions and push the Amex experience through digital wallets. 

Similarly, Visa “supports digital wallets in several ways, including funding wallet accounts, cashing out stored funds and enabling access to Visa’s unparalleled acceptance network,” Ruben Salazar, global head of Visa Direct, told BAN. 

“One of Visa’s top priorities is to continually foster innovation and support new payment experiences across the ecosystem while enhancing core payment experiences,” Salazar said, noting that partnerships are one way to accomplish this. 

Visa collaborates with digital wallet providers Thunes, TerraPay and Tencent to promote financial inclusion and provide payment services. 

Visa Direct reaches more than 3 billion cards, 3 billion accounts and 2.5 billion digital wallets, Salazar said. 

New competition

With 70% of people still doing manual checkouts online, major banks want a seat at the digital wallet table, Matt Miller, vice president of product at the newest digital wallet, Paze, told BAN. 

In fact, Bank of America, Capital One, Chase, Elan, PNC, Truist, U.S. Bank and Wells Fargo offer Paze to retail clients, according to the Paze website.  

Paze allows financial institutions to own the experience, host funds and continue the relationship with card providers, Miller said. 

Paze plans to scale throughout 2024 and is not expected to be exclusive to these major banks, but rather is designed to facilitate a consolidated wallet experience for all financial institutions to tap into, Miller said. One Paze client is expected to bring 1,100 community banks to the Paze platform next year. 

Paze incorporates digital cards into one wallet for all bank relationships, creating “one consistent Paze experience,” he said, adding that consistency is what consumers are craving.  

Consolidation is key

The future of the digital wallet is consolidation, Softserve’s Chohan told BAN. 

Consumers want choice and independence, but having a digital wallet that brings together the choices in one consolidated view is necessary, he said. “It’s really the experience getting aggregated into one center.” 

Digital wallet providers must make it as simple as possible, so consumers “reach and use your wallet and then get the value-added services that they may be looking for,” Chohan said. 

Value-added services include: 

• Cross-border payments. “Digital wallets are making cross-border transactions easier, cost-effective and more secure, especially for economically vulnerable communities,” Visa’s Salazar said. Cross-border transactions through digital wallets are bringing payments capabilities to the underbanked populations of the world, he said. 
• Fraud. Machine learning is getting better at spotting fraudulent transactions and stopping them, and predictive analytics implemented in digital wallets to monitor fraud will be enhanced, Salazar said. 
• Rewards. There is an opportunity to bring rewards into the digital wallet, Chohan said. The wallet could remind consumers to use rewards or offer cash exchanges for rewards before they expire. 

“Wallets will be the only way to solve [for rewards]. … That use case is only a matter of time,” he said. 

Leveling the playing field

Regulation is keeping up with the digital wallet’s evolution and is working toward evening the playing field among tech providers, neobanks and FIs. 

The Consumer Financial Protection Bureau in November proposed a rule that would subject large nonbank companies, which includes digital wallet providers and payments apps, to undergo the same supervisory scrutiny as banks.  

“As the CFPB puts it, this proposed regulation could level the playing field for nonbanks and depository institutions, ultimately benefiting the consumer by putting their needs and protections at the heart of an evolving era of finance and financial services,” Kelly Dempski, Softserve’s vice president of digital business solutions, told BAN.  

Although regulation might even the playing field, it also presents challenges and costs, Dempski said.  

“While various regulations have been anticipated for some time, the execution to promote fair competition may have unintended consequences,” he said. “In this case, it’s like tying one arm behind the back of the larger fintech; the competition might seem more even, but the outcomes are still unpredictable, such as finding a loophole or winning on a technicality.” 

The proposal could hamper innovation efforts from tech providers and, ultimately, negatively impact the customer, he said. 

“Regulation in this space has been an ongoing concern for the past few years, but there’s going to be some trial-and-error to get things right as new technologies, constraints and unforeseen risks evolve,” Dempski said. 

The regulator will accept comments through Jan. 8, 2024, according to the CFPB’s proposed rule.  

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